The Ultimate Guide to Income-Driven Repayment Plans

Sometimes, your student loan payments are higher than you can manage with your income.

If you’re in such a situation, you should know that there are federal programs available to assist you. Specifically, an income-driven repayment plan can lower your monthly student loan payments to a manageable amount.

But how do income-driven repayment plans work? Which plan is best? And how do you apply for income-driven repayment? These questions, and more, are the subject of this article.

We’ll start with an in-depth look at each of the four income-driven repayment plans. Then, we’ll answer some common questions about income-driven repayment.

If you’re looking for ways to ease the financial burden of your student loans, you’ve come to the right place.

Note: This article assumes you understand the basics of how student loans work. For a refresher, read this first.

The 4 Income-Driven Repayment Plans

The U.S. Department of Education currently offers four income-driven repayment plans for federal student loans. In many aspects, these plans are quite similar.

However, there are important differences in how much you’ll pay, how long you’ll be in repayment, and the eligibility requirements you’ll need to meet.

Below, we take a look at the key details of each plan:

Revised Pay As You Earn Repayment Plan (REPAYE Plan)

Our first option to examine is the Revised Pay As You Earn Repayment Plan (REPAYE Plan).

Here are the key facts:

Monthly payment:

Typically 10% of your discretionary income.
For the REPAYE plan, the U.S. Department of Education defines discretionary income as “the difference between your annual income and 150 percent of the poverty guideline for your family size and state of residence.”

How long you’ll be in repayment:

20 years if all the loans you’re repaying were for undergraduate study.
25 years if any of the loans you’re repaying were for graduate or professional study.

Eligibility: Any borrower with eligible loan types (see below) can make payments with this plan.

Eligible loan types:

Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans made to graduate or professional students
Direct Consolidation Loans that did not repay any PLUS loans made to parents

Loan types that are eligible if consolidated:

Subsidized Federal Stafford Loans (from the FFEL Program)
Unsubsidized Federal Stafford Loans (from the FFEL Program)
FFEL PLUS Loans made to graduate or professional students
FFEL Consolidation Loans that did not repay any PLUS loans made to parents
Federal Perkins Loans

Loan types that aren’t eligible for the REPAYE plan:

Direct PLUS Loans made to parents
Direct Consolidation Loans that repaid PLUS loans made to parents
FFEL PLUS Loans made to parents
FFEL Consolidation Loans that repaid PLUS loans made to parents

How to apply: Log in to Federal Student Aid and follow the instructions here.

Pay As You Earn Repayment Plan (PAYE Plan)

Up next, we have the Pay As You Earn Repayment Plan (PAYE Plan). As the name implies, this plan is similar to the REPAYE Plan. However, the eligibility requirements are stricter and more specific.

Here are the key things to know about this plan:

Monthly payment:

Typically 10% of your discretionary income, but never more than what you’d pay on the 10-year Standard Repayment Plan.
For the PAYE plan, the U.S. Department of Education defines discretionary income as “the difference between your annual income and 150 percent of the poverty guideline for your family size and state of residence.”

How long you’ll be in repayment: 20 years

Eligibility:

To qualify for this plan, your monthly payment under the PAYE plan needs to be less than the amount you’d pay under the 10-year Standard Repayment Plan.
In practice, this means you’ll usually qualify if “your federal student loan debt is higher than your annual discretionary income or represents a significant portion of your annual income.”
In addition to the payment requirements, you must be a “new borrower” to qualify for the PAYE plan. The U.S. Department of Education defines a “new borrower” as someone whose federal student loans were disbursed (paid out) “on or after Oct. 1, 2011.”

Eligible loan types:

Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans made to graduate or professional students
Direct Consolidation Loans that did not repay any PLUS loans made to parents

Loan types that are eligible if consolidated:

FFEL PLUS Loans made to graduate or professional students
FFEL Consolidation Loans that did not repay any PLUS loans made to parents
Federal Perkins Loans
Subsidized Federal Stafford Loans (from the FFEL Program)
Unsubsidized Federal Stafford Loans (from the FFEL Program)
FFEL PLUS Loans made to graduate or professional students
FFEL Consolidation Loans that did not repay any PLUS loans made to parents
Federal Perkins Loans

Loan types that aren’t eligible for the PAYE plan:

Direct PLUS Loans made to parents
Direct Consolidation Loans that repaid PLUS loans made to parents
FFEL Consolidation Loans that repaid PLUS loans made to parents
Direct PLUS Loans made to parents

How to apply: Log in to Federal Student Aid and follow the instructions here.

Income-Based Repayment Plan (IBR Plan)

The Income-Based Repayment Plan (IBR Plan) is the third option available for lowering your student loan payments. It’s similar to the PAYE plan in some ways, but your monthly payment and repayment term could differ.

Here’s what you need to know about this plan:

Monthly payment:

Typically 10% of your discretionary income “if you’re a new borrower on or after July 1, 2014”.
Generally 15% of your discretionary income “if you’re not a new borrower on or after July 1, 2014”.
To be considered a “new borrower” under the IBR plan, you must have received all of your federal student loans on or after July 1, 2014. If you had an outstanding balance on any federal student loan before that date, then you’re not considered a new borrower.
For the IBR Plan, the U.S. Department of Education defines discretionary income as “the difference between your annual income and 150 percent of the poverty guideline for your family size and state of residence.”

How long you’ll be in repayment:

20 years if you’re a new borrower on or after July 1, 2014
25 years if you’re not a new borrower on or after July 1, 2014

Eligibility:

If your federal student loan debt “is higher than your annual discretionary income or represents a significant portion of your annual income”, then you’ll typically be eligible.
In addition, your monthly payment under the IBR plan must not be higher than what it would be under the 10-year Standard Repayment Plan.

Eligible loan types:

Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans made to graduate or professional students
Direct Consolidation Loans that did not repay any PLUS loans made to parents
Subsidized Federal Stafford Loans (from the FFEL Program)
Unsubsidized Federal Stafford Loans (from the FFEL Program)
FFEL PLUS Loans made to graduate or professional students
FFEL Consolidation Loans that did not repay any PLUS loans made to parents

Loan types that are eligible if consolidated:

Federal Perkins Loans

Loan types that aren’t eligible for the IBR plan:

Direct PLUS Loans made to parents
Direct Consolidation Loans that repaid PLUS loans made to parents
FFEL PLUS Loans made to parents
FFEL Consolidation Loans that repaid PLUS loans made to parents

How to apply: Log in to Federal Student Aid and follow the instructions here.

Income-Contingent Repayment Plan (ICR Plan)

Our final option to examine is the Income-Contingent Repayment Plan (ICR Plan).

This plan is notable for being the only income-driven repayment plan available to parent borrowers. So if you took out a Parent PLUS loan to help pay for your child’s education, this is the income-driven repayment plan to consider.

Do note, however, that you’ll need to consolidate your PLUS loan(s) into a Direct Consolidation Loan before they’ll be eligible for repayment under the ICR plan.

Here’s what you should know about this plan:

Monthly payment:

The lesser of the following: 20 percent of your discretionary income OR what you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income.
For the ICR plan, the U.S. Department of Education defines discretionary income as “the difference between your annual income and 100 percent of the poverty guideline for your family size and state of residence.”

How long you’ll be in repayment: 25 years

Eligibility: Any borrower with eligible loan types (see below) can make payments with this plan.

Eligible loan types:

Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans made to graduate or professional students
Direct Consolidation Loans that did not repay any PLUS loans made to parents
Direct Consolidation Loans that repaid PLUS loans made to parents

Loan types that are eligible if consolidated:

Direct PLUS Loans made to parents
Subsidized Federal Stafford Loans (from the FFEL Program)
Unsubsidized Federal Stafford Loans (from the FFEL Program)
FFEL PLUS Loans made to graduate or professional students
FFEL PLUS Loans made to parents
FFEL Consolidation Loans that did not repay any PLUS loans made to parents
FFEL Consolidation Loans that repaid PLUS loans made to parents
Federal Perkins Loans

How to apply: Log in to Federal Student Aid and follow the instructions here.

Income-Driven Repayment FAQ

Now that we’ve covered the four different income-driven repayment plans, let’s answer some common questions about income-driven repayment:

Which income-driven repayment plan is best?

If you’re not sure which income-driven repayment plan you should choose, that’s understandable. The requirements for each plan can be confusing.

The best way to figure out which plan would be best is to use the Federal Student Aid Loan Simulator. This interactive tool will ask you questions about your income and life situation. Using this information, the Loan Simulator can offer you recommendations on which income-driven repayment plan to choose.

We also recommend contacting your student loan servicer immediately if you’re struggling to make your loan payments. They can give you specific guidance on how to ease your financial burden.

What will my monthly payment be on income-driven repayment?

Your monthly payment under income-driven repayment depends on your income and family/household size. If you want an estimate, we recommend using the Loan Simulator.

Regardless, you’ll need to recertify your income and family size each year to remain in income-driven repayment. If your income or family size has changed, it could raise or lower your monthly payment.

Note: You can submit updated information sooner than every year if your income or family size has changed significantly.

Will my loans be forgiven under income-driven repayment?

If you haven’t finished repaying your federal student loans at the end of the income-driven repayment period, the government will forgive your remaining loan balance.

However, you should be aware that you may have to pay federal income tax on the amount that was forgiven. For more information, consult this resource (or speak with an accountant).

Can I apply for income-driven repayment if my student loans are in default?

Defaulted student loans aren’t eligible for income-driven repayment plans. If your student loans are in default, here’s how to fix them.

Should I apply for income-driven repayment or loan deferment/forbearance?

In general, it’s better and easier to apply for income-driven repayment than deferment or forbearance. You won’t have to complete as much paperwork, and the requirements tend to be less specific.

Furthermore, the U.S. Department of Education strongly encourages you to apply for income-driven repayment before deferment or forbearance. Especially when you consider that your payments could be as low as $0 per month under income-driven repayment.

Having said that, there are situations where student loan deferment or forbearance may be a better option. Learn more here.

Does it cost anything to apply for income-driven repayment?

No, it’s completely free to apply for income-driven repayment through Federal Student Aid.

Don’t listen to private companies who may contact you about “helping” with the application process in exchange for a fee. You can complete the process for free without their “help.”

Are private student loans eligible for income-driven repayment?

No. Only federal student loans are eligible for the income-driven repayment plans we’ve discussed in this article.

Income-Driven Repayment Can Make Student Loans Manageable

If you’re struggling to repay your student loans, income-driven repayment can provide the relief you need.

Remember that there’s no shame in applying for income-driven repayment. It’s better to be honest with your loan servicer and ask for help than to have your loans end up in default.

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